BREAKFAST DEALS: Yancoal extension

Wayne Swan gives Yancoal more time to meet Gloucester conditions, while a private equity whizz is sent in to evaluate Nine.

Since 2009, the conditions that were set on Yanzhou Coal for the acquisition of Felix Resources have become a bit harder to meet. Treasurer Wayne Swan has cleverly given the company’s local subsidiary, Yancoal Australia, more time to meet them in order to give the company’s $8 billion merger agreement with Gloucester Coal the green light – it’s a smart move. Meanwhile, there are more whispers that National Australia Bank is dolling up its UK operations for a sales process. Elsewhere, a key Goldman Sachs private equity expert is coming down to Australia to speak – amongst other parties – to CVC Asia Pacific over the Nine Entertainment debt mess, there’s an easy plan-B for Aperio Group if the consumer watchdog says no to Amcor and legislative changes to resource ownership in Indonesia has Australia’s biggest miners scrambling.

Gloucester Coal, Yancoal Australia

Treasurer Wayne Swan has blessed Yancoal Australia, the local subsidiary of China’s Yanzhou Coal, with a touch of pragmatism. Swan has given the green light to Yancoal’s $8 billion merger agreement with Gloucester Coal, while recognising that the company has made great strides towards meeting the conditions agreed to in 2009 to acquire Felix Resources.

Swan has given Yanzhou another year to drop its ownership of Yancoal to less than 70 per cent and it will have to reduce its ownership in two assets not included in the merger, Syntech Resources and Premier Coal, by the end of 2014. The company will also be required to keep its headquarters in Australia.

The question now is whether shareholders will go for the revised proposal that some argue sapped some of the value away from Gloucester. The revised terms deliver Gloucester shareholders $3.15 a share through a special dividend of 44 cents a share and a capital return of $2.71, which is 5 cents less than the original deal. While this mightn’t be particularly pleasing, a unanimous board recommendation is hard to walk past.

It’s looking more and more likely that National Australia Bank is preparing its UK operations, Clydesdale Bank and Yorkshire Bank, for a sale. There have been more mutterings this week and now they’ve popped up at Edinburgh newspaper The Scotsman. Sources told the newspaper NAB plans to sell off the troublesome commercial property businesses of its UK arm in order to make a full sale of those two banks easier to get away.

Using recent deals in this space as a guide, NAB could be staring at a £1 billion to £1.6 billion ($1 billion to $2.4 billion) writedown on assets that are currently valued at £3.7 billion. That would be hard for investors to swallow, but what’s increasingly apparent is that they also want the UK assets gone. As The Scotsman says, NAB is going to have to ‘pretty them up’.

Then there’s the touchy question of who could buy them, given the turmoil that the European banking sector is in at the moment. The Australian Financial Review suggests that Spain’s Banco Santander could be a candidate, reporting that one analyst estimates Santander’s retail market share in the UK could be boosted by 10 to 12 per cent if it picked up Clydesdale and Yorkshire. But at what cost?

Nine Entertainment, CVC Asia Pacific

Goldman Sachs has sent one of its top private equity experts, Stephen Sher, to Australia with the expectation that he will spend a significant amount of time working on the investment bank’s mezzanine loan to Nine Entertainment. Reports have indicated recently that the network’s owner CVC Asia Pacific has put Ticketek and Allphones Arena up for sale – to go with ACP Magazines that’s already on the block – in order to address its $2.7 billion debt burden that’s due in February.

Goldman Sachs has an almost $1 billion mezzanine loan with Nine that sits beneath the $2.7 billion debt that’s causing all the headaches. US hedge funds Apollo Global Management and Oaktree Capital hold nearly 50 per cent of Nine’s debt and are hoping to convert that debt to equity and largely wipe CVC out. CVC has less than a year to come up with an alternative plan and no doubt it will be hoped that Sher has some lateral thinking skills.

Aperio Group, Amcor, Pact Group

It’s unsurprising to find that advisers to Catalyst Investment Managers, Greenhill Caliburn, have a plan-B if the Australian Competition and Consumer Commission blocks flexible packaging company Aperio Group from being sold to Amcor for $238 million. Raphael Geminder and his Pact Group have been widely reported to have also put a bid in for the company – there’s no question about who they’d have to call next.

The question is whether Pact would be able to put up a price that would be acceptable. The Australian Financial Review brings word from Credit Suisse indicating that Amcor would generate up to $40 million in synergies from a takeover, something Pact wouldn’t hold a candle to.

Virgin Australia, Etihad Airways

Etihad Airways chief executive James Hogan could not have made it clearer that when Virgin Australia has finished its restructure to bring in more foreign investment, his airline will be there. The airline executive has been quoted in a number of news reports indicating that Etihad is "very keen” to talk to Virgin about future "opportunities”.

The question is what Virgin’s existing major shareholders, Richard Branson’s Virgin Group and Air New Zealand, will do. Fairfax understands that one of the options Air New Zealand, which already owns 20 per cent of Virgin Australia, is considering is a merger of equals. But it’s very early days.

Indonesia

The Resource Super Profits Tax (RSPT) might just have been overtaken as the silliest piece of policy for an Asia-Pacific nation. The Indonesian government will require foreign companies to sell down their stakes in assets held in our northern neighbour to 49 per cent so that Indonesian companies or arms of the government can collect most of the profits. Lawyers and advisers at Australia’s largest miners will be scrambling to see how the changes, which will apply once a mine reaches its tenth year of production, will impact them.

The really big Australian players in Indonesia are BHP Billiton, Rio Tinto and Newcrest Mining. Their problem is that conflicting signals are coming out of Jakarta, with the Energy and Minerals Department reportedly saying that the new structure wouldn’t apply to existing ventures, while the mining minister has been quoted saying that for existing operations "there must be re-negotiation”.

Whatever the outcome, expect some wheeling and dealing in this space.

Wrapping up

An Australian government-backed institution has been caught up in the Iraqi bribery episode that allegedly involved Leighton Holdings. According to Dow Jones, the Export Finance and Insurance Corporation says it gave the Leighton subsidiary in question, Leighton Contractors, two "performance bonds” to help expand their facilities in southern Iraq. The potential for this to cast a shadow on future deals for Australian companies in Iraq should not be underestimated, given the history of AWB.

Australian ISP iiNet will reportedly become the first telco in this country to declare its intention to purchase its own branded domain name. According to Fairfax, the Australian ISP will seek an ‘.iiNet’ domain name, with the AFL seeking its own ‘.afl’ domain name.

And finally, global commodity trader Glencore International, which is in the middle of a $US90 billion ($84 billion) merger with Xstrata, has built a 6.49 per cent stake in Australia’s gold and copper developer YTC Resources.

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